unit 1 Investment Analysis and Portfolio Management .pptx

aktu IAPM notes

1. Unit I Investment Overview of Capital Market: Market of securities, Stock Exchange and New Issue Markets - their nature, structure, functioning and limitations; Trading of securities: equity and debentures/ bonds. Securities trading - Types of orders, margin trading, clearing and settlement procedures. Regularity systems for equity market , Type of investors, Aim & Approaches of Security analysis.

2. MARKET OF SECURITIES A platform where financial instruments such as stocks, bonds, debentures, and derivatives are bought and sold. It allows companies to raise capital by issuing securities, and investors to purchase these securities. The securities market is primarily regulated by the Securities and Exchange Board of India (SEBI) , which ensures transparency, investor protection, and the orderly functioning of the market.

3. The securities market is divided into two major segments: Primary Market (New Issue Market) Secondary Market (Stock Market):

4. Primary Market (New Issue Market): In the primary market, securities are issued for the first time by companies to raise capital. Investors directly buy these securities from the issuer. Example : SBI Cards and Payment Services IPO (2020) : SBI Cards issued shares in its Initial Public Offering (IPO) to raise ₹10,340 crore. Investors who participated in the IPO directly purchased shares from the company. Nykaa IPO (2021) : The Indian cosmetics and fashion e-commerce company Nykaa issued shares in its IPO and raised approximately ₹5,352 crore. Investors who subscribed to the IPO received shares directly from the company.

5. Secondary Market (Stock Market): The secondary market is where previously issued securities are traded between investors. Two major stock exchanges in India—the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE) —serve as platforms for this trade. Example : Infosys Shares : After Infosys issued shares in the primary market, they began trading on the NSE and BSE. Investors regularly trade Infosys shares on these exchanges.

6. Components of the Securities Market Equity Market Debt Market Derivatives Market Mutual Funds Foreign Exchange (Forex) Market

7. Equity Market : This is where ownership shares are bought and sold. Investors can gain dividends or capital appreciation from these investments. Debt Market : The debt market is where bonds and debentures are traded. Companies and governments issue these securities to borrow money from investors in return for periodic interest payments. Example : Indian Government Bonds : The Government of India issues bonds like the 10-year Government Bond , which investors buy for stable returns.

8. Derivatives Market : In this market, investors trade financial contracts whose value is derived from underlying assets such as stocks, indices, currencies, or commodities. Example : Nifty 50 Futures : Investors trade contracts predicting future movements of the Nifty 50 index, helping manage risk or speculate on market direction. Mutual Funds : Mutual funds pool money from various investors to invest in a diversified portfolio of stocks, bonds, or other securities. Investors buy units of mutual funds, which represent a portion of the total portfolio. Example : SBI Bluechip Fund : This mutual fund invests in large-cap companies listed on the NSE and BSE, and investors can buy units of the fund as part of their portfolio.

9. Foreign Exchange (Forex) Market : The Forex market involves trading currencies and is a part of the securities market that allows investors to hedge risks or speculate on currency movements. Example : An Indian exporter buys US Dollars (USD) to hedge against future fluctuations in the INR-USD exchange rate.

10. Benefits of the Securities Market Capital Raising : Companies raise funds by issuing securities, which they use for expansion, working capital, and other operational needs. Liquidity : Investors can easily buy and sell securities, ensuring their investments are not locked and can be quickly converted to cash if needed. Investment Opportunities : The securities market provides numerous options, such as stocks, bonds, mutual funds, and derivatives, allowing investors to diversify their portfolios. Example : An investor may invest in a Tata Consultancy Services (TCS) stock for potential capital appreciation and government bonds for steady income. Price Discovery : Securities markets help in the price discovery of financial instruments by reflecting the demand and supply dynamics in real-time. Economic Growth : A well-functioning securities market promotes investment and innovation, leading to overall economic growth. Example : The NSE and BSE facilitate investments in major companies like Bharti Airtel , contributing to job creation and industrial development in India.

11. Stock Exchange (Secondary Market) Nature The stock exchange is a regulated marketplace where existing (previously issued) securities, such as equities (shares) and debt instruments (bonds, debentures) , are bought and sold by investors. India's two primary stock exchanges are the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) .

12. Structure : BSE : Asia's oldest stock exchange, BSE was established in 1875 and has a total of 5,309 listed stocks on BSE as of January 24, 2024 . NSE : Established in 1992, the NSE is India's largest stock exchange by trading volume and market capitalization. There are 2,266 stocks listed on the NSE.

13. Functioning Listing of Securities : Companies list their shares or debt instruments on the stock exchange after fulfilling regulatory requirements. For example, Reliance Industries , Infosys , and Tata Consultancy Services (TCS) are listed on both BSE and NSE. Trading of Securities : Investors buy and sell securities through stockbrokers, with trades happening electronically through platforms like NSE's NIFTY and BSE's SENSEX . Price Discovery : Stock prices fluctuate based on supply and demand, market sentiment, and company performance. For example, news of quarterly earnings from HDFC Bank or Infosys can influence stock prices. Settlement : Once a trade is executed, the settlement process takes place. In India, the T+1 system is followed, meaning that trade settlements are completed within two business days.

14. An example of market manipulation in the Indian context is the Satyam Computer Services scandal in 2009, also known as "India's Enron." In this case, the company's founder and then-chairman, Ramalinga Raju, manipulated financial statements and inflated profits to deceive investors and artificially boost the stock price of Satyam on the Indian stock exchanges. This led to significant misrepresentation of the company's financial health, which attracted numerous investors based on false information. When Raju eventually admitted to the fraud, Satyam's stock plummeted by over 70%, wiping out billions of dollars in market value and causing huge losses to investors. The incident raised serious concerns about corporate governance, auditing practices, and insider trading in India.

15. Harshad Mehta stock market scam of 1992 , where Mehta manipulated stock prices by illegally obtaining funds from banks and investing them in the stock market. This led to a sharp rise in stock prices, followed by a market crash when the scam was exposed, causing massive losses to retail investors and shaking the trust in India's financial markets.

16. Speculation : Stock exchanges can sometimes attract excessive speculation, leading to artificial price movements that may not reflect a company’s true value.

17. Reliance Power IPO in 2008 At the time, the Reliance Power initial public offering (IPO) was one of the most highly anticipated events in the Indian market, with retail and institutional investors showing immense interest due to the company's association with the Reliance Group, which had a strong reputation. The IPO attracted massive speculation, with the stock being highly overvalued even before it started trading. The IPO was oversubscribed by around 73 times, reflecting the speculative frenzy around the stock. However, once Reliance Power was listed on the stock exchanges, the stock price dropped dramatically—plummeting by nearly 17% on the first day of trading and continuing to fall in the following months.

18. This sharp decline in stock price was a result of excessive speculation and overvaluation, which did not reflect the company's actual business fundamentals, leading to significant losses for investors who had invested at the peak of the hype. The incident highlighted how speculative bubbles could inflate stock prices artificially and then burst, leaving investors with substantial losses.

19. New Issue Market (Primary Market) Nature The new issue market , also known as the primary market , is where companies raise capital for the first time by issuing new securities to investors. Companies use this market to issue shares, bonds, or debentures to fund expansion, pay off debt, or finance projects.

20. Structure Initial Public Offering (IPO) : In the primary market, companies issue securities directly to the public for the first time through an IPO. Example : Zomato IPO (2021) was a landmark issue, raising ₹9,375 crore. Follow-on Public Offering (FPO) : Companies that are already listed may issue additional shares to the public through an FPO. Example : Tata Steel FPO (2018) raised additional funds by offering more shares to existing shareholders and new investors. Private Placements : Companies can issue securities to a select group of investors (such as institutional investors) rather than the general public.

21. Functioning Issue of Prospectus : A company intending to raise capital through the primary market releases a prospectus , providing detailed information about its financials, business model, and the terms of the securities issue. Underwriting : Investment banks or financial institutions often act as underwriters , guaranteeing the sale of the issue. They purchase any unsold shares if the issue is not fully subscribed. Allotment : Once investors subscribe to the issue, the company allots the securities. In cases of oversubscription, shares are allotted on a proportionate basis. Listing on Stock Exchange : After securities are sold in the primary market, they are listed on the stock exchange for trading in the secondary market. Example : LIC IPO (2022) , India’s largest IPO, raised ₹21,000 crore and was subsequently listed on the BSE and NSE.

22. Limitations High Risk for Investors : Companies entering the market through an IPO may be untested, and investors face higher risks compared to investing in established companies. Example : Some IPOs, like Paytm (2021) , saw a sharp decline in share value shortly after listing, leading to significant losses for initial investors. Underpricing or Overpricing : IPOs are often underpriced to ensure their success, potentially reducing the gains for the issuing company. Conversely, overpricing can lead to underperformance post-listing.

23. An example of underpricing in an IPO is the Coal India Limited IPO in 2010 . Coal India, a state-owned enterprise, launched its IPO, which became one of the largest in Indian history at the time. The IPO was priced at ₹245 per share and was significantly oversubscribed by institutional and retail investors, showing strong demand. When Coal India shares were listed on the stock exchange, the stock price surged by over 40% on the first day of trading, closing at around ₹342 per share. This large increase in the share price on the first day suggested that the IPO was underpriced, as the company could have potentially raised more capital if the shares were initially priced higher. While this benefited investors, it reduced the potential gains for Coal India. An example of overpricing is the Paytm IPO in 2021 . Paytm, India's leading digital payments company, launched its IPO with a high valuation, pricing its shares at ₹2,150. However, after its listing, the stock price fell by more than 27% on the first day of trading, closing at ₹1,564. The overpricing of the IPO led to significant underperformance post-listing, resulting in heavy losses for many investors. The market sentiment was that the stock was overvalued, which led to a sharp correction after its debut. This case highlighted the risks of overpricing in IPOs, especially when the market perception does not align with the company's valuation.

24. Trading of Securities 1. Trading of Equity (Shares) : Equity represents ownership in a company, and shareholders benefit from dividends and capital gains when the company's value increases. Mechanism : Equities are traded on the secondary market (BSE and NSE). Investors place buy and sell orders through stockbrokers. Example : Infosys shares can be bought or sold on the NSE or BSE. Share prices fluctuate daily based on company performance, industry trends, and market sentiment.

25. Trading of Debentures and Bonds Debentures and bonds are debt instruments issued by companies or the government to raise long-term capital. Unlike equity, bondholders do not own a part of the company but receive interest payments. Government Bonds : The Government of India issues bonds, such as 10-Year Government Bonds , to finance infrastructure projects. Corporate Bonds : Companies like Tata Motors or Reliance Industries issue corporate bonds or debentures to raise funds. Mechanism : These are traded in the debt segment of the secondary market. Bonds can be bought and sold through stock exchanges or in the over-the-counter (OTC) market. Example : An investor may buy Tata Motors Debentures listed on the NSE, earning fixed interest over a specified term.

26. The Over-the-Counter (OTC) market in India refers to a decentralized market where securities, commodities, or financial instruments are traded directly between two parties, without the supervision of an exchange. In contrast to stock exchanges, OTC markets are less regulated, and trades are usually carried out through a network of dealers, brokers, or financial institutions. OTC markets are typically used for trading instruments like bonds, derivatives, unlisted stocks, and government securities. Examples of OTC Market in India: Government Securities (G-Secs) Market : In India, government securities (such as treasury bills and bonds) are often traded in the OTC market. Large financial institutions, banks, and institutional investors conduct these transactions directly with each other, without the involvement of a stock exchange. The Negotiated Dealing System (NDS) platform, launched by the Reserve Bank of India (RBI), facilitates OTC trading in government securities. Corporate Bonds : Many corporate bonds and debt instruments are traded over-the-counter in India, particularly those issued by large corporations and financial institutions. These instruments are generally traded directly between institutional investors, such as mutual funds, insurance companies, and banks. For example, bonds issued by companies like Tata Sons, HDFC, and Reliance Industries are often traded in the OTC market.

27. Unlisted Stocks : Companies that are not listed on formal exchanges, such as Muthoot Finance or Tata Sky , have their shares traded in the OTC market. These transactions are handled through brokers or financial institutions without going through a traditional stock exchange like the BSE or NSE. Forex Market : India's foreign exchange (forex) market operates largely in the OTC space. Currency derivatives, spot trades, and forward contracts between banks, companies, and other institutional players happen directly, outside any exchange, with the involvement of authorized dealers or brokers. OTC Exchange of India (OTCEI) : While the OTCEI was set up as an organized OTC market in the 1990s to allow smaller companies to raise funds, it struggled to gain traction and was shut down in 2015. Despite its closure, the initiative was an example of an attempt to formalize OTC trading in equity and debt securities in India.

28. Limitations in Trading Liquidity : Bonds and debentures may suffer from lower liquidity than equities, making it harder to buy or sell them quickly. Interest Rate Risk : Bond prices are sensitive to changes in interest rates. When interest rates rise, bond prices typically fall, affecting the return on investment.

29. Suppose you bought a 10-year government bond in India with a fixed coupon rate of 6% . This means you will receive 6% interest every year for 10 years. Now, imagine the Reserve Bank of India (RBI) raises interest rates , and new bonds are issued with a higher coupon rate of 7% . Impact: Because new bonds are offering 7% interest, your old bond with a 6% interest rate becomes less attractive. To sell your bond, you'll have to offer it at a lower price to make it competitive with the new higher-interest bonds. As a result, the price of your bond falls . In short: Interest rates go up → New bonds offer higher returns. Old bond prices go down → Investors prefer new bonds with higher rates, making older ones less valuable.

30. Securities trading - Types of orders Securities Trading involves the buying and selling of financial instruments like stocks, bonds, and derivatives on stock exchanges such as the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). An order in securities trading is an instruction given by an investor to buy or sell a particular security. In India, these orders can be placed on the NSE and BSE through brokers or trading platforms.

31. A. Market Order A market order is an instruction to buy or sell a security immediately at the current market price. Example : An investor wanting to buy Reliance Industries shares can place a market order. If the current price is ₹2,500, the order will execute at this price (or close to it). B. Limit Order A limit order allows the investor to specify the maximum price they are willing to pay when buying or the minimum price they are willing to accept when selling. Example : An investor may place a limit order to buy Tata Motors shares at ₹600, meaning the trade will only be executed if the stock price drops to ₹600 or below.

32. C. Stop-Loss Order A stop-loss order is used to limit potential losses by automatically selling a security when it reaches a predetermined price. Example : If an investor holds HDFC Bank shares bought at ₹1,700 and wishes to limit losses, they can place a stop-loss order at ₹1,650. If the price falls to ₹1,650, the shares will be sold to prevent further losses. D. Stop-Limit Order A stop-limit order combines features of both stop-loss and limit orders. Once the stop price is triggered, the order becomes a limit order and is executed at the limit price or better. Example : An investor holds Infosys shares and sets a stop-limit order with a stop price of ₹1,450 and a limit price of ₹1,440. If the stock hits ₹1,450, the order will become a limit order to sell at ₹1,440 or better. E. Good-till-Cancelled (GTC) Order A GTC order remains active until the order is executed or canceled by the investor. Example : An investor can place a GTC limit order to buy ICICI Bank shares at ₹900. This order will remain valid until the stock reaches this price or the investor cancels it.

33. Margin Trading Margin trading allows investors to buy securities by borrowing funds from their broker, using the purchased securities as collateral. This enables investors to take larger positions than they could with their own capital. The Securities and Exchange Board of India (SEBI) regulates margin trading in India, ensuring risk management.

34. Mechanism of Margin Trading Investors can buy securities by paying only a part of the total purchase price, known as the margin . The rest of the money is borrowed from the broker. SEBI mandates a minimum initial margin and a maintenance margin . If the value of the securities falls and the margin requirement is not met, the broker can issue a margin call , asking the investor to deposit additional funds or liquidate the position. Example of Margin Trading : An investor wants to buy 100 shares of Infosys at ₹1,450 each, for a total cost of ₹1,45,000. With margin trading, the investor may only need to pay ₹72,500 (50% margin), while the broker finances the remaining ₹72,500. If the price of Infosys rises to ₹1,600, the investor can sell the shares and make a profit on the total value, not just the amount they initially invested. However, if the price falls to ₹1,300, and the margin requirement is breached, the broker may issue a margin call , requiring the investor to add funds.

35. Risks of Margin Trading Amplified Losses : While margin trading can amplify gains, it can also magnify losses, as investors are exposed to a larger position than they could afford with their own funds. Margin Call : If the value of the security drops significantly, investors may be forced to either deposit more funds or sell the securities at a loss.

36. Clearing and Settlement Procedures After a trade is executed on an exchange, it must go through the clearing and settlement process , ensuring the smooth transfer of securities and funds between the buyer and seller. In India, the National Securities Clearing Corporation Limited (NSCCL) for NSE and Indian Clearing Corporation Limited (ICCL) for BSE handle this process. Traditionally, Indian exchanges followed a T+2 settlement cycle, meaning trades were settled two business days after execution. This was shortened to T+1 in January 2023 starting in a phased manner from January 2022. The market is now moving to same-day settlement of trades, within a year of fully implementing the T+1 cycle. ‘ T+0 settlement offers a paradigm shift – trades are settled on the same business day they are executed, and the sellers will receive the money on the same day the trade is executed. Clearing Process : After a trade is executed, the clearing house steps in as an intermediary between the buyer and seller. The clearing house guarantees the trade, reducing counterparty risk. The clearing house verifies the buyer and seller’s details and ensures that the buyer has sufficient funds and the seller has the necessary securities.

37. Delivery vs. Intraday Trading Delivery Trading : In this method, the buyer takes actual delivery of the shares, meaning they own them and can hold them indefinitely. Intraday Trading : In contrast, intraday trades must be squared off (bought and sold) within the same day, without actual delivery of shares.

38. Regulatory Systems for Equity Markets India's equity markets are regulated by a comprehensive framework designed to ensure transparency, fairness, and investor protection. The regulatory system is spearheaded by several key institutions, including the Securities and Exchange Board of India (SEBI) , Reserve Bank of India (RBI) , Ministry of Finance , and Stock Exchanges like the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) . These institutions are responsible for formulating rules, monitoring market activities, and taking enforcement actions when necessary.

39. Securities and Exchange Board of India (SEBI) Securities and Exchange Board of India (SEBI) Role of SEBI SEBI is the primary regulator of the equity markets in India. Its main objectives are: Protecting investor interests Promoting fair and efficient markets Regulating market participants, such as brokers, mutual funds, and other intermediaries Ensuring transparency and curbing market manipulation SEBI has broad authority to regulate equity markets, including issuing guidelines for Initial Public Offerings (IPOs) , corporate governance , trading practices , and ensuring the timely disclosure of material information by publicly listed companies.

40. Key SEBI Regulations in Equity Markets SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 : This requires listed companies to disclose important financial and operational information promptly, ensuring transparency. Example : When Infosys announces its quarterly earnings or makes key corporate decisions like appointing new executives, they are required to notify both SEBI and the stock exchanges. SEBI (Prohibition of Insider Trading) Regulations, 2015 : SEBI’s insider trading rules prevent trading on the basis of material non-public information. Example : If a senior official of Reliance Industries trades shares based on upcoming financial results that have not yet been made public, it would be a violation of SEBI’s insider trading regulations, leading to penalties or prosecution. SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 : This governs the process of raising capital in the equity markets, such as through IPOs. Example : When Zomato went public in July 2021, its IPO followed SEBI's capital raising guidelines, ensuring that investors were well-informed about the company’s financial health and business model.

41. Reserve Bank of India (RBI) While the RBI primarily focuses on regulating the banking sector and monetary policy, it also plays a crucial role in the equity markets, especially with respect to foreign investment and capital flows . Key Roles of RBI in Equity Markets : Foreign Institutional Investors (FII) and Foreign Portfolio Investors (FPI) : The RBI regulates the entry and participation of foreign investors in Indian equity markets. Foreign investments are crucial for market liquidity, and the RBI issues guidelines on the amount and terms of investments by FPIs and FIIs. Example : The Foreign Exchange Management Act (FEMA) , regulated by RBI, governs how FIIs and FPIs can participate in equity markets. In January 2020, RBI allowed higher foreign ownership limits in sectors like defense and telecommunications, which led to significant foreign investments in companies like Bharti Airtel and HDFC Bank . Control over Banking Sector Exposure : RBI also regulates how much banks can invest in equity markets and prevents over-exposure to stock market risks. Example : The RBI's prudential norms limit the exposure of banks to equity markets, helping manage risk and ensuring that banks don't face undue stress due to stock market volatility.

42. Ministry of Finance The Ministry of Finance is responsible for formulating the government's policies on capital markets, taxation, and related economic issues. Its key functions include drafting laws that impact equity markets and overseeing SEBI’s functioning. Key Roles of the Ministry of Finance : Taxation of Equity Investments : The government decides the taxation regime for equity investments, including Capital Gains Tax . The ministry has adjusted the Long-Term Capital Gains (LTCG) and Short-Term Capital Gains (STCG) tax rates to optimize investor participation while balancing revenue needs. Example : In the 2018 Union Budget, the Ministry of Finance reintroduced a 10% LTCG tax on gains over ₹1 lakh on the sale of equity shares after a year, affecting long-term investors. Disinvestment and IPOs of Public Sector Enterprises : The Ministry also plays a key role in public offerings of state-owned enterprises (PSUs). Example : The IPO of Life Insurance Corporation of India (LIC) in 2022 was managed by the Ministry of Finance as part of the government’s disinvestment strategy.

43. Stock Exchanges (BSE & NSE) BSE and NSE are India's major stock exchanges and have their own set of regulations in addition to those of SEBI. They monitor the day-to-day trading activities and ensure smooth market operations. Key Roles of Stock Exchanges : Market Surveillance : The exchanges are responsible for monitoring unusual price movements and insider trading activities. They work closely with SEBI to prevent market manipulation. Example : In 2020, NSE halted trading for 45 minutes when the index dropped sharply, triggering the circuit breaker mechanism to prevent a crash. Clearing and Settlement : Exchanges also oversee the settlement of trades through their respective clearinghouses — the National Securities Clearing Corporation Limited (NSCCL) for NSE and the Indian Clearing Corporation Limited (ICCL) for BSE. Example : When an investor buys shares of Tata Consultancy Services (TCS) , the trade is settled on a T+2 basis , meaning the shares and funds are transferred within two working days after the trade date.

44. Depositories (NSDL & CDSL) The National Securities Depository Limited (NSDL) and the Central Depository Services (India) Limited (CDSL) are the two key depositories that hold and maintain investors’ securities in an electronic ( Demat ) format. Role of Depositories : Dematerialization of Shares : Investors no longer receive physical share certificates; instead, shares are held in Demat accounts, simplifying the trading process and reducing fraud. Example : A retail investor holding HDFC Bank shares can open a Demat account with NSDL or CDSL to hold their shares securely. When they sell these shares, the depositories handle the electronic transfer of ownership. Corporate Actions : Depositories also manage events like dividends , stock splits , rights issues , etc. Example : If Infosys announces a bonus issue of shares, NSDL/CDSL ensures that the additional shares are credited to eligible investors’ Demat accounts.

45. Regulatory Challenges and Limitations Despite the robust regulatory framework, India's equity markets face several challenges: Market Manipulation : Despite stringent SEBI regulations, there are instances of pump and dump schemes where stock prices are artificially inflated to lure investors, only to be sold off later. Example : In 2021, SEBI penalized multiple brokers and traders for artificially inflating prices of penny stocks like Vikas WSP . Investor Education : Retail investors often lack the financial literacy to understand complex products like derivatives or leveraged trading, leading to poor investment decisions. Slow Judicial Process : While SEBI can impose penalties, the appeals process in Indian courts is slow, which delays the resolution of market manipulation and insider trading cases.

46. Type of investors 1. Retail Investors Retail investors are individual investors who buy and sell securities for personal accounts, often in smaller quantities. They invest in stocks, bonds, mutual funds, or other investment vehicles to meet their personal financial goals, such as retirement planning, children's education, or wealth creation. Characteristics : Small-scale investment amounts. Typically have a lower risk appetite. More likely to be influenced by market sentiment and news. Often participate in Initial Public Offerings (IPOs) .

47. Institutional Investors Institutional investors are organizations or entities that invest substantial amounts of capital into the stock market. These include mutual funds, pension funds, insurance companies, banks, and hedge funds. Their investments can significantly impact market prices due to the large volumes of securities they trade. Types of Institutional Investors : Mutual Funds : These funds pool money from various investors to invest in diversified portfolios of securities. Insurance Companies : Invest premiums collected from policyholders into various financial instruments. Pension Funds : Manage large sums of money set aside for employees’ retirement.

48. Foreign Institutional Investors (FIIs) / Foreign Portfolio Investors (FPIs) They are non-Indian entities that invest in Indian equity markets. They play a crucial role in providing liquidity and driving market trends in India. Characteristics : Large investment volumes. Subject to RBI and SEBI regulations. A significant presence in the Indian markets, making them key drivers of market volatility.

49. Domestic Institutional Investors (DIIs) They are Indian financial institutions, including banks, insurance companies, pension funds, and mutual funds, that invest in the Indian stock market. DIIs provide a counterbalance to foreign investors and help stabilize markets. Example : When FIIs pulled out of the Indian markets in March 2020 due to the global pandemic, DIIs like LIC and HDFC Mutual Fund stepped in, buying significant shares to prevent the market from falling further. This intervention helped stabilize the market, preventing a larger crash.

50. High Net-Worth Individuals (HNIs) They are wealthy individuals who invest significant amounts of money in the market. While they are still classified as retail investors, their capital and risk appetite are much larger compared to the average retail investor. Characteristics : Significant capital investments. Often participate in private placements and Qualified Institutional Placements (QIPs) . Invest in stocks, bonds, real estate, and venture capital. Example : HNIs often participate in IPOs through the Non-Institutional Investor (NII) category. In the Nykaa IPO of 2021, many HNIs made large investments, applying for shares worth crores, hoping to benefit from the company's strong growth prospects in the beauty and personal care sector.

51. Speculators They are investors who engage in short-term, high-risk trading with the aim of making quick profits. They often trade in derivatives like futures and options, betting on price movements in specific stocks or indices. Characteristics : High risk appetite. Frequent trading with a focus on short-term gains. Often engage in margin trading or leveraged investments. Example : Speculators may trade in Nifty 50 options or futures contracts, aiming to profit from the daily or weekly fluctuations in the index. They may also invest in volatile stocks like Adani Enterprises or Vedanta to capitalize on sharp price movements.

52. Value Investors Value investors are those who invest in companies that are undervalued by the market but have strong fundamentals. These investors believe that the market will eventually recognize the true worth of the company, leading to capital appreciation over time. Example : Famed investor Rakesh Jhunjhunwala was known as a value investor who bought large stakes in companies like Titan and Lupin when they were undervalued and held them over the long term, profiting from their eventual growth and stock price appreciation.

53. Angel Investors and Venture Capitalists Angel investors and venture capitalists invest in early-stage startups, often providing the capital required for a company to grow in exchange for equity. These investors take on significant risks, as startups are often unproven and may fail. Example : In the Indian startup ecosystem, angel investors like Ratan Tata and venture capital firms like Sequoia Capital India have invested in companies like Ola , Flipkart , and Byju’s , backing these companies at an early stage before they became market leaders.

54. Socially Responsible Investors (SRI) They focus on companies that meet specific ethical, social, or environmental criteria. They prefer to invest in firms that follow sustainable practices and contribute to the welfare of society. Example : Many SRIs in India are focusing on the renewable energy sector, investing in companies like Tata Power and Suzlon Energy , which are involved in green energy initiatives. Mutual funds like SBI Magnum ESG Fund also cater to investors seeking companies with strong environmental, social, and governance (ESG) practices.

55. Aim of Security Analysis Determine the Intrinsic Value : The primary goal is to estimate the true or intrinsic value of a security, which helps investors decide whether to buy, hold, or sell. Example : Analyzing Reliance Industries stock by reviewing its balance sheet, revenue growth, and future expansion plans to determine its intrinsic value. Assess Risk and Return : Security analysis helps investors gauge the risk associated with a security and its potential return, enabling them to choose investments aligned with their risk tolerance. Example : Evaluating the risk associated with investing in Adani Group stocks post-2022 controversies, considering political risks, regulatory scrutiny, and future earnings prospects. Make Informed Investment Decisions : Security analysis provides insights that support investment decisions, whether for short-term trading or long-term investing. Example : Based on analysis, an investor might decide to invest in HDFC Bank for long-term growth due to its stable earnings and leadership in the Indian banking sector. Minimize Investment Losses : By performing detailed analysis, investors can avoid poorly performing stocks or exit before significant losses. Example : Analyzing debt-heavy companies like Vodafone Idea to assess whether their financial health can lead to potential losses in the long term.

56. Approaches to Security Analysis Fundamental Analysis It involves evaluating a company's financial health, its business model, and macroeconomic factors. It looks at qualitative and quantitative factors to estimate the intrinsic value of a security. Investors compare this intrinsic value to the current market price to determine whether a stock is undervalued or overvalued. Key Components : Financial Statements : Income statements, balance sheets, and cash flow statements are analyzed to evaluate profitability, solvency, and liquidity. Company Performance Metrics : Ratios like Price-to-Earnings (P/E) , Price-to-Book (P/B) , Debt-to-Equity , and Return on Equity (ROE) are studied. Industry and Economic Analysis : Examining the industry’s future prospects, competition, and macroeconomic factors such as GDP growth, inflation, and interest rates.

57. Advantages : Focuses on long-term value creation. Helps identify fundamentally strong companies that may offer high returns in the future. Limitations : Time-consuming as it requires in-depth research. Long-term focus may not suit short-term traders.

58. Technical Analysis It is based on studying historical price movements and trading volumes. It assumes that all relevant information about a security is already reflected in its price and focuses on identifying trends, patterns, and market sentiment using charts and technical indicators. Key Components : Price Trends : Identifying trends like uptrends, downtrends, or sideways movements. Chart Patterns : Analyzing patterns like head and shoulders , double top/bottom , or triangle patterns . Technical Indicators : Using indicators like Moving Averages , Relative Strength Index (RSI) , and Bollinger Bands to time buy and sell decisions.

59. Advantages : Ideal for short-term traders who rely on market timing. Provides actionable insights based on historical price movements. Limitations : Does not consider the intrinsic value of the company. Price movements can sometimes be unpredictable due to external shocks or events.

60. Quantitative Analysis It uses mathematical models, statistics, and algorithms to evaluate securities. It often involves analyzing historical data, such as earnings reports, stock prices, and other metrics, to make investment decisions. Advantages : Data-driven approach reduces emotional bias. Can identify patterns that may not be visible through other methods. Limitations : Heavily reliant on historical data and may not account for sudden market changes.

61. Behavioral Finance It explores the psychological aspects of investing, recognizing that investors are not always rational and their emotions can lead to market inefficiencies. This approach seeks to understand how cognitive biases, emotions, and crowd psychology affect security prices. Example in Indian Context : In 2020, during the COVID-19 pandemic, many investors in India exhibited herding behavior , leading to panic selling in the early months of the crisis. However, this was followed by a sharp market rebound, showing that psychological factors can lead to irrational decision-making.

62. List of major stock market scandals Enron Scandal (USA, 2001) Bernie Madoff Ponzi Scheme (USA, 2008) Satyam Scandal (India, 2009) Libor Scandal (Global, 2012) Pump and Dump Schemes (Global) Wirecard Scandal (Germany, 2020) Volkswagen Emissions Scandal (Global, 2015)

63. Harshad Mehta Scam (India, 1992) Galleon Group Insider Trading Scandal (USA, 2009) Nick Leeson and Barings Bank Collapse (UK, 1995) China’s Luckin Coffee Fraud (China, 2020) The SEC vs. Martha Stewart (USA, 2004) MF Global Collapse (USA, 2011) Robinhood and GameStop Short Squeeze (USA, 2021) 1MDB Scandal (Malaysia, 2015)

64. Crisis in Stock Market The Panic of 1907 Wall Street Crash of 1929 (Great Depression) Black Monday (1987) Asian Financial Crisis (1997) Dot-com Bubble (2000-2002) Global Financial Crisis (2008) European Sovereign Debt Crisis (2010-2012) 2015-2016 Chinese Stock Market Crash COVID-19 Crash (2020) 2022 Bear Market